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Our team recently came together for our third annual Pack-a-Shoebox Party in support of Operation Christmas Child. What started as a simple goal turned into a meaningful team effort, resulting in 64 packed shoeboxes ready to be delivered to children around the world.

Each box was filled with carefully chosen items—from small toys to school and hygiene essentials—intended to bring comfort, joy, and a reminder that someone, somewhere, cares.

What makes this effort special isn’t just the number of boxes, but the spirit behind them. It’s a reflection of our team’s willingness to pause during a busy season and focus on something beyond our day-to-day work.

We’re proud to continue this annual tradition and grateful to everyone who helped make it happen. Together, small actions added up to something truly meaningful.

The IRS and U.S. Department of the Treasury have released official guidance clarifying how tips and overtime compensation will be treated for tax year 2025. While the changes primarily impact individual tax returns, employers should understand what, if anything, changes from a payroll perspective.

The Basics

Beginning in 2025, eligible individuals may claim:

• A Qualified Tips Deduction of up to $25,000
• A Qualified Overtime Deduction of up to $12,500 (for overtime pay above an employee’s regular rate)

These deductions are claimed by employees when they file their personal tax returns. They do not change how payroll is processed.

What Employers Need to Know

•  No new payroll reporting requirements for 2025
• No changes to W-2 or withholding rules for tips or overtime this year
• Employers are not required to separately track or report “qualified” tips or overtime in 2025

Employees will determine eligibility and calculate these deductions when they file their individual returns using IRS guidance and their pay records.

What This Doesn’t Change

• Gross wages are still taxable and reportable as usual
• Employers must continue to withhold and remit payroll taxes on tips and overtime
• Overtime calculations, tip reporting, and payroll compliance rules remain the same

Looking Ahead

The IRS has indicated that updated reporting requirements may apply in future tax years, possibly starting in 2026. We’re monitoring developments closely and will communicate any changes that impact payroll processing.

How We’re Supporting You

As your payroll partner, we’ll continue to ensure your payroll is processed accurately and in compliance while keeping you informed of regulatory changes that affect your business and your employees.

As always, please contact us with any questions.

A meaningful shift is coming for employers who provide meals to employees for the employer’s convenience. As part of the amendments enacted under the One Big Beautiful Bill Act (OBBBA), the longstanding deduction for these meals will be eliminated starting with tax years beginning after December 31, 2025.

If your organization regularly offers on-site meals, food allowances, or catered options intended to support workflow or workplace efficiency, now is the time to take note.

What’s Changing?

For many years, employers were permitted to deduct 50% of the cost of meals provided for the employer’s convenience, such as meals offered during peak workloads or when employees were required to stay on premises.

Beginning in 2026, those same expenses will become 100% nondeductible, unless a very narrow exception applies. Importantly:

• The nondeductibility applies whether meals are provided directly by the employer or purchased through a third-party vendor or caterer.
• The rule change represents a complete phase-out of the prior 50% deduction, making it essential to evaluate how your organization categorizes and tracks all food-related expenses.

What Remains Deductible?

While convenience meals are losing deductibility, several related expense categories are not affected:

Still Deductible

• Business meeting meals: 50% deductible
• Employee holiday parties and similar social events: 100% deductible

Still Nondeductible

• Entertainment expenses remain fully nondeductible, as under existing law.

These distinctions make proper expense classification more important than ever.

What Employers Should Do Now

As 2026 approaches, businesses should begin reviewing their existing accounting and record-keeping practices. Misclassification of meals, entertainment, or employee events could lead to lost deductions or compliance concerns once these new rules take effect.

We recommend:

• Reviewing how meal and food-related expenses are currently logged
• Ensuring clear separation between meeting meals, social events, entertainment costs, and employer-convenience meals
• Updating internal policies to reflect what will and will not be deductible in future years

If your business needs guidance on preparing for this change or evaluating the potential tax impact, our team is here to help. Please reach out with your questions or to schedule a review.